When Stephen Hester, Stuart Gulliver and Bob Diamond were preparing to walk
into The Grimond Room in Portcullis House to answer politicians questions on
Tuesday afternoon, the chief executives of RBS, HSBC and Barclays
respectively were pulled aside by an official to be given the news.

António Horta-Osório, chief executive of Lloyds Banking Group.

James Quinn and Harry Wilson

9:00PM GMT 05 Nov 2011

Antonio Horta-Osorio, their opposite number at Lloyds Banking Group, would not be joining them. “Personal reasons” was the explanation given. Each man took the news in his stride and went ahead with the grilling in front of the Financial Services Bill Joint Committee.

Wind the clock back 24 hours and all was not calm on the eighth floor of the bank’s glass-encased headquarters at 25 Gresham Street in the City. For at some point on Monday afternoon, Horta-Osorio, who had only arrived at the bank on March 1, left the building.

Insiders suggest that having looked particularly tired during meetings on Monday morning, Horta-Osorio came to the realisation that he was exhausted while he prepared for the following day’s hearing. He promptly informed Sir Win Bischoff, the bank’s chairman, telling him he was going to the doctor. He did not return.

Officially, the bank is saying that there was no crisis, and that Horta-Osorio did the responsible thing. But others say the events were far more dramatic, which raises questions about Horta-Osorio can return as quickly as Lloyds has claimed.

What is clear is that by Monday night, Sir Win knew very clearly that the man he had selected just a year earlier to transform the bank’s fortunes would not be returning to the executive floor in a hurry.

By Wednesday morning, after the news leaked, Lloyds shares fell 4.5pc to 29.2p, with investors questioning not only Horta-Osorio’s surprise departure – despite assurances that he is likely to return by the end of the year – but the decision to appoint the outgoing finance director, Tim Tookey, as interim chief executive. The days that have passed have raised more questions – of the true state of Horta-Osorio’s health, of corporate governance and of board practice. Many have questioned whether he will ever return.

“It has been clear talking to those in the bank that Antonio hasn’t been working properly for a number of weeks,” said one former Lloyds staffer, although sources close to Lloyds refute such suggestions. “Decisions were not getting made, in external meetings he appeared distracted, internally things were not happening.”

A financier from a rival bank recollects meeting Horta-Osorio over the summer when he had been his usual sparky self. But last month he had failed to show up for a scheduled meeting, and Tookey had arrived alone. Another source, who saw him a fortnight ago, said he looked terribly tired and, at times, seemed distant.

Others, though, have pointed to the fact that Horta-Osorio continued to take time out of work to play tennis and spent time working out with his personal trainer.

One senior source suggested Horta-Osorio’s “extreme fatigue” might be down to his obsession with detail and micro-managing matters which most other chief executives would have let aides deal with. Speaking to The Sunday Telegraph in early July, Horta-Osorio admitted he thought nothing of holding strategy meetings at weekends because it allowed his senior managers to have clearer heads. “My days have been quite intense recently,” he said, adding: “Detail is very important if you want to go in the right direction.”

Typical of this obsessive approach, Horta-Osorio was apparently so concerned by “toxins” that he demanded his own teapot travel with him on trips, while his favourite green tea was made available in every meeting room he was likely to go into. Apparently, Horta-Osorio, one of the most powerful men in UK banking, could get “very upset” if this wasn’t the case.

Dealing with such small details at the same time as being the front man of a public company – something he had not had to deal with as UK chief executive of Santander – clearly took its toll. While more than at home with the inner workings of bank integration and the group’s daily operations, it is understood Horta-Osorio felt pressure from being the chief executive of a bank in which UK taxpayers have a 41pc stake.

Regular calls to and meetings with UK Financial Investments (which manages the stake on the behalf of the Government), the Treasury and the Bank of England, plus requests to appear before a variety of Parliamentary committees, all added to his burden. Whereas at other banks the regulatory role is often separated – HSBC chairman Douglas Flint takes on far more of that work than the CEO, Stuart Gulliver, for example – Horta-Osorio kept it all to himself.

The ongoing sale of project Verde, the 632-branch business Lloyds is selling, added to that pressure. His relations with Paul Pester, Verde’s chief executive, are said to have been strained, with Pester pushing for a stock market float, while Horta-Osorio preferred a trade sale. Other tensions are said to have come from a perceived “them and us” culture at the bank which developed alongside the arrival of several senior hires he brought to Lloyds from Santander.

Juan Colombas was appointed as Lloyds’ chief risk officer, having held the same role at Santander UK, and former Santander UK chief financial officer Antonio Lorenzo was drafted in to run Lloyds’ wealth and international business. Other senior recruits from Santander included Alison Brittain, who replaced Helen Weir as retail chief, and Nathan Bostock, the new wholesale chief who joined from RBS but had worked with Horta-Osorio at Santander.

The clean-out of the executive floor by Horta-Osorio has done little for morale among the rank-and-file, particularly among Lloyds lifers, and it is said that talk of the “them and us” division was enough to anger Horta-Osorio, who is said to have regularly raised his voice to the people who reported to him.

How much the board knew of the increasing pressures facing its chief executive is not known, however. None of the senior non-executives The Sunday Telegraph tried to contact this weekend chose to return calls.

But as the newspaper reveals today, the board’s situation is far from certain. In addition to the questions surrounding who on the board knew what and when, questions remain as to whether it should have allowed Horta-Osorio to change the executive team quite so soon after his arrival, replacing directors with years of experience and knowledge with newcomers from a much smaller, foreign-owned institution.

It is understood that on Wednesday morning, two days after Horta-Osorio left Lloyds’ City headquarters, the board met in person and via teleconference. It was split over what it should announce. One faction, led by Sir Win, backed the announcement that was made, promising Horta-Osorio’s return by the end of the year. But another faction felt it would be more sensible to say that he would not return at all, and announce immediate changes to the bank’s executive line-up.

It is understood that the board has already developed a contingency plan for the possibility Horta-Osorio does not return. Insiders suggest an update on his condition will be known within two to three weeks, and it is at this point, if necessary, a decision on whether or not to introduce the plan will be made.

In the short term, that plan is understood to involve the appointment of a senior existing board figure to an executive role.

None of this answers the question of who will take on the key executive roles long-term should Horta-Osorio not return. With Tookey firmly in the departure lounge – he leaves in February to become finance director of Resolution’s Friends Life business – the board faces the very real prospect the banking group could in the future be without a chief executive or a finance director.

The existing search to replace Tookey is understood to have reached the second round, with a handful of strong external candidates as well as internal candidates. Bostock is possibly in line for the role, and that of chief executive in the long-term, with Mark Fisher, group operations director, a chief executive contender. For investors, the key issue is the uncertainty of all this and whether Horta-Osorio’s strategy will remain in place.

“Ultimately, our view is that Lloyds should be viewed as a super-tanker. The strategy is in place and the issue is now execution,” said John Paul Crutchley, analyst at UBS. But Robert Law of Nomura said Horta-Osorio’s leave of absence was an “obvious negative, given the many senior management changes and initiatives [made] since his appointment”.

If Horta-Osorio does return – something which sources at the very top of Lloyds insist is going to happen – it is clear the status quo, of him micro-managing everything, cannot continue.

Although a new division of labour is not yet thought to have been discussed by the board, a new approach in which both the chairman and finance director take on some of his responsibilities is likely.

But all that is a big if, and is dependent on the outcome of the next few weeks. Whether the dashing Portugese banker will return to sip green tea at 25 Gresham Street remains to be seen.